Banks and mortgage lenders have been slashing home loan interest rates to historical lows in recent months, as they compete for business from the nation’s home buyers. But even with home loans out there with an interest rate with a 1 on the front, how can you successfully apply for one?
The facts on home loans under 2 per cent
At the time of writing, there are a couple of home loans available with interest rates of less than 2 per cent. These are some of the lowest rates that anyone at RateCity can remember seeing.
But (and this is a big but), the eligibility criteria for these home loans is very specific. While a few people would be able to benefit from these low, low rates, many borrowers would have to look elsewhere for a low-interest home loan that also suits their financial situation.
Additionally, your interest rate won’t be guaranteed to stay under 2 per cent forever – you may have to pay more for your mortgage in the future.
Loans.com.au recently announced an introductory home loan rate of just 1.99 per cent. While this is the lowest variable rate in Australia at the time of writing, the loan will revert to an ongoing variable rate of 2.57 per cent after the first year.
This rate is available to new customers who apply for an owner-occupier loan paying principal and interest repayments with a deposit of 20 per cent or more.
Recent RateCity analysis showed that if an owner-occupier with a $400,000 home loan switched from an average owner-occupier rate of 3.28 per cent to the 1 year introductory rate from Loans.com.au, they could potentially save $4,246 in the first year, including refinancing costs, or over $15,000 in the first five years.
Bank of us
Bank of us is offering a home loan for up to 90 per cent of the property value, with an interest rate of 1.99 per cent, fixed for one, two, or three years. However, to be eligible for this loan, you need to be buying as an owner occupier, and you also need to be a resident of Tasmania (other terms and conditions also apply). If you’re a resident of the apple isle looking to buy a home to live in, this could be a mortgage option to consider, but for investors and those of us on the mainland, we’d need to look at other options.
Remember that these fixed rates will only last for a maximum of 3 years. Your rate will be locked in during this time, keeping you mortgage payments consistent for simpler budgeting, and protecting you from extra charges due to variable rate hikes. However, if the lender was to cut variable rates during this time, you may miss out on interest savings. And if you decide to refinance during the fixed-rate period, you may have to pay break fees.
It’s also possible to get a home loan with an interest rate under 2 per cent through Bank Australia. Technically, they’re not offering a home loan with an interest rate below 2 percent – instead, in partnership with the Clean Energy Finance Corporation (CEFC), they’re offering a clean energy discount of 0.40 or even 0.50, allowing you to potentially get a fixed rate as low as 1.74 per cent for two or three years.
There are three ways to qualify for a green discount on a Bank Australia Premium Package Home Loan for $1.5 million or less:
- Buy a property built after 31 December 2018 with a 7-star Nationwide House Energy Rating Scheme Certificate (NatHERS) rating for energy efficiency
- Upgrade an existing property with ambitious green upgrades in the last 12 months; enough to achieve a minimum 1-star increase in energy efficiency.
- Buy a new or existing home with three eligible sustainability features, like a minimum NatHERS rating of 8 stars, a solar system, a battery or a real-time in-home energy monitoring system.
Other terms and conditions also apply.
Before you apply
Remember that there’s a lot more to any home loan than just its interest rate. The home loan with the lowest interest rate may not be the best home loan for you. Always compare different options and check the fees, charges, features and other benefits before you apply.
If you’re not sure which home loan may be the best option for you, consider contacting a professional financial adviser or mortgage broker.